The Paycheck Protection Program (PPP) re-opened for applications yesterday, and although plenty of questions continue to need answers, the focus remains on the potential forgiveness of PPP loans. The amount of forgiveness depends on the borrower’s payroll costs over an eight-week period, but when does that eight-week period begin?
It in fact begins on the date that the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
Though this was helpful guidance from the Small Business Administration (SBA), an important question persists. Section 1106 of the CARES Act provides that “costs incurred and payments made” within the eight-week covered period will be forgiven, but the SBA has not clarified whether an expense must be incurred and paid within the eight-week period to be eligible for forgiveness, or whether “costs incurred” and “payments made” during the eight-week period are both forgivable. This is important because, under the former interpretation, a borrower could not use the funds to pay employees for work performed prior to receiving the loan. Until the SBA provides further guidance, borrowers should attempt to err on the side of caution, and treat only paid costs as forgivable.